Sunday, November 11, 2018

The U.S. Court of Appeals for the Seventh Circuit held that a defendant waived its right to arbitrate due to its "gratuitous delay" in seeking arbitration, where it waited thirteen months after the filing of the lawsuit before moving to compel arbitration, and that any showing of prejudice to the non-moving party was not required.

The plaintiff ("Plaintiff") applied for and received a credit card from a bank ("Bank"). The credit card contract included an agreement to arbitrate all disputes related to the account. The agreement also contained a waiver of the right to seek class action relief.

The Bank hired a debt collector ("Collector") to collect an allegedly unpaid balance on the credit card. The Collector informed the Plaintiff that it would commence collection proceedings unless she disputed the debt in writing.

On July 15, 2016, the Plaintiff brought a class action suit against the Collector arguing that it violated the federal Fair Debt Collection Practices Act when it required her to dispute the debt in writing.

In August 2016, the Collector filed a motion to dismiss for failure to state a claim, lack of standing, and lack of personal jurisdiction. The motion did not mention the arbitration agreement.

The Plaintiff subsequently filed an amended complaint and renewed her motion for class certification. The Collector again filed a motion to dismiss and opposed the class certification, but did not mention the arbitration agreement in any of its briefs.

While the motions were pending, several discovery disputes arose an on February 17, 2017, the magistrate scheduled a discovery conference.

After the discovery conference was held, the Collector sent the Plaintiff a letter on March 10, 2017 notifying her of the arbitration agreement and demanding arbitration. Three days later, the Plaintiff unequivocally refused to proceed to arbitration.

The letter was not filed, and the trial court was not notified that the Collector had demanded arbitration.

On April 19, 2017, the Collector filed an answer and affirmative defenses to the amended complaint. The Collector did not mention the arbitration agreement.

On June 19, 2017, the trial court denied the Collector's motion to dismiss.

On August 7, 2017, thirteen months after the suit began, the Collector moved to compel arbitration.

The trial court denied the motion on two grounds. First, it found that as a non-signatory to the arbitration agreement, the Collector could not enforce the agreement. Second, it found that the Collector waived any right to arbitrate by not diligently asserting that right.

The Collector appealed.

On appeal, the Seventh Circuit first addressed the issue of whether the Collector had waived any right to compel arbitration.

In analyzing the issue, the Court first noted that "[l]ike any other contractual right, the right to arbitrate can be waived." Further, if the Collector "waived any right to arbitrate, the company necessarily waived any right to oppose class certification premised on the agreement."

The Plaintiff did not argue that the Collector expressly waived any right to arbitrate. Thus, the question was "whether we should infer that forfeiture occurred."

To determine whether a forfeiture occurred, a court must "determine that, considering the totality of the circumstances, a party acted inconsistently with the right to arbitrate."

The Seventh Circuit explained that "[m]any factors are relevant to this analysis, but due diligence or the lack thereof is particularly important." Included in the consideration is "whether the allegedly defaulting party participated in litigation, substantially delayed its request for arbitration, or participated in discovery."

However, the court "need not find that the nonmoving party was prejudiced by the delay in seeking arbitration."

The Seventh Circuit noted that the Collector "did not privately demand arbitration until eight months after the Plaintiff filed suit," and then after the Plaintiff's refusal, "waited another five months before moving to compel."

Further, the Collector's "explanation for these delays [was] entirely inadequate," as it claimed it was initially unaware of the agreement. The Seventh Circuit found this explanation "suspect," as such arbitration agreements are commonplace, and "federal regulations require credit card issuers to post their credit card agreements online."

Moreover, the Court noted that even setting aside the initial eight-month delay, "the company's actions from that point were unjustified and manifestly inconsistent with an intention to arbitrate" because it filed an answer to the complaint which contained no reference to the agreement, and it failed to supplement its briefs on the motion to dismiss and for class certification even though those motions remained pending.

The Seventh Circuit therefore held that "[o]n these facts, the district court's conclusion that [the Collector] waived its right to arbitration was not erroneous."

Because it determined that the Collector waived any right to arbitrate, the Seventh Circuit did not reach the issue of whether the Collector could have enforced the arbitration agreement as a non-signatory.

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Ralph Wutscher's practice focuses primarily on representing depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, distressed asset buyers and sellers, loss mitigation companies, automobile and other personal property secured lenders and finance companies, credit card and other unsecured lenders, and other consumer financial services providers. He represents the consumer lending industry as a litigator, and as regulatory compliance counsel.

Ralph has substantial experience in defending private consumer finance lawsuits, including cases ranging from large interstate putative class actions to localized single-asset cases, as well as in responding to regulatory investigations and other governmental proceedings. His litigation successes include not only victories at the trial court level, but also on appeal, and in various jurisdictions. He has successfully defended numerous putative class actions asserting violations of a wide range of federal and state consumer protection statutes. He is frequently consulted to assist other law firms in developing or improving litigation strategies in cases filed around the country.

Ralph also has substantial experience in counseling clients regarding their compliance with federal laws, and with state and local laws primarily of the Midwestern United States. For example, he regularly provides assistance in connection with portfolio or program audits, consumer lending disclosure issues, the design and implementation of marketing and advertising campaigns, licensing and reporting issues, compliance with usury laws and other limitations on pricing, compliance with state and local “predatory lending” laws, drafting or obtaining opinion letters on a single- or multi-state basis, interstate branching and loan production office licensing, evaluations and modifications of new or existing products and procedures, debt collection and servicing practices, proper methods of responding to consumer inquiries and furnishing consumer information, as well as proposed or existing arrangements with settlement service providers and other vendors, and the implementation of procedural or other operational changes following developments in the law.

Ralph is a member of the Governing Committee of the Conference on Consumer Finance Law. He is also the immediate past Chair of the Preemption and Federalism Subcommittee for the ABA's Consumer Financial Services Committee. He served on the Law Committee for the former National Home Equity Mortgage Association, and completed two terms as Co-Chair of the Consumer Credit Committee of the Chicago Bar Association.

Ralph received his Juris Doctor from the University of Illinois College of Law, and his undergraduate degree from the University of California at Los Angeles (UCLA). He is a member of the national Mortgage Bankers Association, the American Bankers Association, the Conference on Consumer Finance Law, DBA International, the ACA International Members Attorney Program, as well as the American and Chicago Bar Associations.

Ralph is admitted to practice in Illinois, as well as in the United States Court of Appeals for the Seventh Circuit, the United States District Courts for the Northern and Southern Districts of Illinois, and the United States District Court for the Eastern District of Wisconsin, and has been admitted pro hac vice in various jurisdictions around the country.